In the question given below, there are 2 statements marked as Assertion (A) and Reason (R). Choose the correct alternative from the following options.

Assertion (A)- The most important determinant of consumption demand is household income.

Reason (R)- The simplest consumption function assumes that consumption changes at a constant rate as income changes.

Both (A) and (R) are true but (R) is not the correct explanation of (A).

The correct answer is option 2: Both (A) and (R) are true but (R) is not the correct explanation of (A).

Assertion (A): The most important determinant of consumption demand is household income. This assertion is true. Household income is widely recognized as the most important determinant of consumption demand because it directly affects the purchasing power of households.

Reason (R): The simplest consumption function assumes that consumption changes at a constant rate as income changes. This reason is also true. The simplest consumption function, often represented as C=a+bY where C is consumption, a is autonomous consumption, b is the marginal propensity to consume (MPC), and Y is income, implies that consumption changes at a constant rate (MPC) as income changes.

However, while both statements are true, the reason does not directly explain why household income is the most important determinant of consumption demand. The reason describes the nature of the consumption function rather than explaining the importance of household income.